When it comes to test scores, salaries, batting averages, or pretty much anything other than golf scores – the higher the better. The same goes for credit scores. And a good credit score means a lot if you’re starting or running a business.
Why Your Credit Score Matters
A credit score is a way that financial institutions and lenders attempt to predict your future financial behavior. They look at your financial past- what types of loans you’ve taken out, if you quickly repay or default on a loan altogether, and if you’re consistent in your payments and even pay on time. Then based on their assessment they assign you a score between 850 and 300.
The higher the score the better of an investment you are, so your ability to take out new loans or work with lenders with better rates increases.
This can be essential if you’re looking to start a business or expand the business you already have. It even can come into play if you’re sourcing large amounts of raw materials or other resources for your business – many wholesalers are more likely to extend larger tabs to clients with higher credit scores because they know they’ve got a good financial history.
How Do You Increase Your Small Business Credit Score
Remember, you didn’t get your current credit score overnight, so raising your credit score isn’t going to happen that fast either, but you can always do things to help it improve.
- Take a look at your current credit report – review you’re current credit report and look for areas that might include false information or items that have a negative impact. Verify your story to the best of your ability by collecting related paperwork and any bank or credit card statements. Then contact the credit agency and ask to work through these concerns.
- Pay on time. Every time – Making sure you can pay your bills and that you do so on time is the best way to improve your business credit score. To do so, consider setting things on autopay, paying a little extra each time so you’ve built up a reserve and setting reminders on your phone so you can check to see that you’ve paid in full by the required monthly deadline.
- Pay Down Your Debt – for most individuals and small businesses this can be a monumental task, but it is possible and it makes a great impression. If you’re looking to acquire a loan or are putting things on credit, go into it with a plan on how to pay it off. If you’re stuck with debt, take a look and see if you can consolidate it by using a debt snowball method. No matter what, pay the minimums so that your current schedule credit score doesn’t take a hit.
- Improve your Credit Utilization Ratio– lenders take into consideration just how much you utilize your credit. The higher your utilization rate the greater the risk of not being able to repay your debts. So work to keep your credit utilization rate low, preferably under 30%. Lenders want to see that you can properly manage your debts and are much more willing to extend credit if there is a lower risk.
No matter what don’t give up. Pick a strategy and stick with it. Don’t get frustrated when you don’t get immediate results – like we said before, you didn’t get your current credit score overnight and you won’t undo it that fast either. Making wise financial decisions consistently will not only improve your credit score but also help your financial standing overall.
Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.